2018 (8) TMI 1200 - AT - Income Tax

Undisclosed income - admission of declaration of income during survey u/s 133A - Held that - the statement recorded u/s. 133A of the Act de hors incriminating material found at the time of survey cannot be the basis to make any addition. In other words, there should have been evidence found which can lead to the conclusion that assessee has suppressed income. In the present case, no such exercise has been carried out by the AO or the CIT(Appeals). In the course of survey u/s. 133A of the Act, the inventory has to be compared with the stock as per the books of account. While arriving at the value of inventory, the cost price has to be determined and due deduction given towards direct expenses. In other words, if the stock found at the time of survey carries a tag of sale price, then to arrive at the purchase price of the assessee, gross profit margin as declared in the relevant assessment year and direct expenses have to be reduced. Only then the value of inventory at the time of survey can be ascertained. If the inventory is more than the value as recorded in the books of account, then addition u/s. 69 as unexplained investment in stock has to be made. If there is a shortfall, then the presumption is that the assessee has sold goods outside the books of account and then appropriate profit margin has to be added to the total income. Without following the procedure which is normally adopted in the case of a survey, the AO cannot be allowed to make additions - Decided in favor of assessee.

Summary

Issues:
1. Addition of ?40 lakhs to the total income of the assessee based on a statement recorded during a survey u/s. 133A of the Income-Tax Act, 1961.

Analysis:
The only issue in this appeal was whether the revenue authorities were justified in adding ?40 lakhs to the total income of the assessee based on a statement recorded during a survey u/s. 133A of the Income-Tax Act, 1961. The assessee, a partnership firm engaged in retail trading, filed a return of income for AY 2013-14 declaring ?9,11,310. During a survey, the managing director agreed to declare income of ?40 lakhs for the year, but the assessee did not include this in the return. The AO made the addition citing the managing partner's admission. The CIT(Appeals) upheld the AO's decision.

Upon appeal, the Tribunal considered the validity of the addition. The Tribunal noted that the statement recorded during the survey cannot be the sole basis for making an addition without supporting evidence of suppressed income. The AO did not follow the standard procedure of comparing inventory values and determining cost prices. The Tribunal emphasized the need for evidence to conclude income suppression. Without proper verification, the addition of ?40 lakhs solely based on the survey statement was deemed inappropriate.

The Tribunal referred to the decision of the Hon'ble Madras High Court, emphasizing the requirement for concrete evidence to support income additions. The Tribunal concluded that the AO's approach lacked adherence to proper procedures. Therefore, the Tribunal set aside the CIT(Appeals) order and remanded the issue to the AO for a fresh consideration in line with the standard procedures for survey assessments.

In conclusion, the Tribunal allowed the appeal of the assessee for statistical purposes, highlighting the importance of following established procedures and requiring concrete evidence to support income additions based on survey statements. The judgment emphasized the necessity of proper verification and adherence to legal procedures in determining income additions during surveys under the Income-Tax Act, 1961.